I recently participated in a spirited panel discussion with Bruce Brown, Procter & Gamble’s Chief Technology Officer, and Erich Joachimsthaler, Vivaldi Partners’ managing director and CEO. The topic — part of a series on innovation sponsored by Singapore’s Economic Development Board and coordinated by Harvard Business Review — was “What’s the Right Entry Point for Emerging Markets: Target Customers at the Bottom or the Middle of the Pyramid?”
I kicked off the discussion by arguing that many companies ought to start in the middle. After all, the World Bank estimates that the number of middle class consumers in emerging markets will jump from 420 million today to more than 1.2 billion by 2030. In Asia alone, spending in that market tier will surge during that time period from $5 trillion to $30 trillion.
Reaching this vast middle won’t be easy, I said. First, it will take more than introducing compelling products and services to mastering intricate business models. Success can require experimenting with new ways to market, distribute, offer post-sales support, and more. You also need to re-think how you organize. Global giants have to increasingly ask emerging markets branches to go from acting as local distributors to serving as local developers. This shift is easier said than done. It requires rethinking reporting relationships, talent management, rotational assignments, compensation, and more.
Joachimsthaler’s perspective was that while the numbers sounded enticing, the middle class is no monolith. Companies need to understand those markets at a granular level, and recognize that winning in those markets will be harder than they think. He described Tata’s seemingly stalled efforts to create a low-cost “people’s car” in India. Joachimsthaler’s opinion is that the aspirational nature of an automobile means people don’t want to buy something known as being “the cheapest.”
Scott D. Anthony is managing director, Innosight Asia-Pacific.